Banks urgently need to raise more capital

The FPC said that banks had gone as far as they could to raise capital by keeping down pay, dividends and share buybacks. \"But the committee remained concerned that capital was not yet at levels that would ensure resilience in the face of prospective risks,\" the FPC said. \"It therefore advised banks to raise external capital as early as feasible.\" The 11-member FPC reached this decision at its quarterly meeting on March 16, and said it would review progress by banks at its next meeting in June. The FPC is one of a new breed of watchdogs springing up across the world to spot risks that go beyond a single bank, plugging a gap highlighted by the financial crisis. The FPC held its first meeting in June last year, and next year it will gain legal powers to order banks to take action to improve the stability of the financial system as a whole. On Friday, it listed the initial set of three powers that it wanted. First it wants to be able to order banks to raise or lower capital buffers to smooth out swings in credit supply. Second, it wants to be able to set capital requirements to cool specific sections of the lending market, for example commercial real estate lending or high loan-to-value mortgages. Finally, it wants to be able to change banks\' overall leverage ratio - effectively how much they can lend in total. It stopped short of calling for powers to be able to completely ban high loan-to-value or loan-to-income mortgages, saying that the public debate on this was not sufficiently advanced for it to be acceptable for the BoE to do this. However, these powers will be kept under review and the FPC said it may ask for more powers in future.